US Retail Stocks Fall But Saks Up On Upgrade; Best Buy Up Too

Retail stocks declined after a consumer sentiment index in June rose less than expected. Saks Inc.
SKS, +2.01%
shares jumped after the luxury retailer was upgraded to buy from hold by Deutsche Bank.

The Standard & Poor's Retail Index fell 1.3% to 325, tracking the Dow Jones Industrial Average and the S&P 500, which reached an approximately seven-month high Thursday.

U.S. consumer sentiment, released by the University of Michigan and Reuters, rose slightly to 69 in June from 68.7 in May. Economists were looking for a June result of 71. The index hit a 28-year low of 55.3 in November and has averaged 88.2 over the last 10 years.

Saks shares surged 19.7% to $4.50. Deutsche Bank analyst Bill Dreher said the retailer has "solid initiatives and strategies" in place that will help bolster its profit margin. With the recovery of the stock market that's expected to give comfort to upscale shoppers, sales should benefit as the company's performance has been highly correlated to the market's performance, Dreher said. The company also has done a good job of controlling its inventory and expenses, he said.

"The nature of Saks has changed; management is no longer spending like a luxury customer," said Dreher. "Management has a realistic perspective of the current environment and we believe they have established a very sensible road map."

By fiscal 2012, the company should be able to achieve its fiscal 2007 profit margins before interest and tax of 4.4%; that would represent an 8-percentage-point improvement from a negative profit margin at the end of fiscal 2008, he said. He set a price target of $7 a share for the stock.

Best Buy Co.
BBY, -0.63%
was up 1.7% to $37.86. Ahead of its earnings next week, William Blair & Co. analyst Jack Murphy raised his first-quarter profit estimate on the company to 30 cents a share from 25 cents based on what he described as "more optimistic margin and expense assumptions." He said the boost from the demise of rival Circuit City Stores Inc.
CCTYQ
should help limit the comparable-sales decline expected at the largest U.S. electronics retailer.

Rival RadioShack Corp.
RSH, +5.28%
was up 1 cent to $14.83. JPMorgan analyst Christopher Horvers said the company has upgraded its in-store wireless product presentation and made other progress in the wireless business, which should bode well for its near-term profit. He said, however, the "longer-term brand story remains cloudy."

The world's largest retailer Wal-Mart Stores Inc.'s
WMT, -0.37%
shares were up 17 cents at $49.49.

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